* Need to normalise monetary policy in medium term
* Prospects for Swiss economy have improved
(Adds quotes)
By Laura MacInnis
GENEVA, Nov 12 (Reuters) - The Swiss National Bank's short-term goal is to support the recovery, but it must find the right moment to normalise monetary policy in the medium term, board member Thomas Jordan said on Thursday.
"In the short term, the challenge for Swiss monetary policy consists of supporting the economic recovery in a difficult phase, without the low rates and the high liquidity leading to an undesirable development," Jordan said in a speech.
"In the medium term, it's about defining the opportune moment to normalise monetary policy. Finally, in the long term, the challenge is to guarantee price stability," he said.
Jordan said inflation was currently in negative territory but added: "We think we will soon be back in the zone that is in the area of price stability."
Jordan said interest rates could not stay at effectively zero indefinitely, but added: "We will see after the crisis what the demand level is, and see what level of interest rate is correct."
Jordan said the prospects for the Swiss economy had improved since the summer and the country was in a better state than many others, but still noted that the situation was gloomy and unemployment high.
He noted that consensus forecasts were now for the Swiss economy to shrink by 1.8 percent this year and to grow by 0.9 percent in 2010.
At its last monetary policy meeting in September, the SNB forecast a decline in gross domestic product of 1.5 to 2.0 percent in 2009. Its next meeting is on Dec. 10.
The European Central Bank has already signalled its first small steps towards the withdrawal of crisis liquidity support for the banking sector and ECB President Jean-Claude Trichet said on Saturday the U.S. Federal Reserve had similar plans.
On Tuesday, Jordan said he saw no need to change monetary policy now, although he said the SNB was aware low interest rates contained risks for both financial and price stability in the medium-term.[ID:nLA603661]
The SNB took a number of extraordinary measures to soften the impact of the worst economic downturn in decades on the Swiss economy, which is particularly vulnerable to weaker demand from abroad due to its dependence on exports.
The bank has cut its target for the 3-month Swiss franc LIBOR to 0.25 percent, offering cash in its daily operations at rates close to zero and bought corporate Swiss franc bonds.
It has also intervened on foreign exchange markets to stop the Swiss franc rising against the euro and fight deflation.
WEAK GROWTH
Jordan said on Thursday he saw no signs of a shortage of credit for the Swiss economy, although he warned that global plans to tighten regulation of financial markets could lead to a temporary slowdown in lending.
He also said while it was still hard to predict how the global economy would develop, there was a possibility of a long phase of relatively weak growth in the United States and Europe despite the current surprisingly strong recovery.
In an interview with Swiss newspaper Le Temps on Thursday, SNB Chairman Jean-Pierre Roth said he did not believe central banks would be inclined to use interest rates to calm market exuberance.[ID:nLC368748]
"I do not believe that, right now there is, within the central banking circles, the belief that interest rates should be an instrument to use to limit euphoria," added Roth, who is retiring at the end of this year. (Writing by Emma Thomasson; editing by Ron Askew)